M/s Khandelwal Associates, Mathura V. I.T.O.-3(2), Agra

CO 19/AGR/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 3142 (ITAT-AGRA)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Deemed dividend
• Section: 56(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.399/AGR/2010 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME TAX, VS. M/S KHANDELWAL ASSOCIATES, CIRCLE-3, MATHURA. UDYOG NAGAR, VRINDAVAN, MATHURA. (PAN: AABFK 0887 E). C.O. NO.19/AGR/2011 (IN ITA NO.399/AGR/2010) ASSESSMENT YEAR: 2006-07 M/S KHANDELWAL ASSOCIATES, VS. DY. COMMISSIONER OF INCOME TAX, UDYOG NAGAR, CIRCLE-3, MATHURA. VRINDAVAN, MATHURA. (PAN: AABFK 0887 E). (APPELLANTS) (RESPONDENTS) REVENUE BY : SHRI WASEEM ARSHAD, SR. D.R. ASSESSEE BY : DR. RAKESH GUPTA, ADVOCATE DATE OF HEARING : 29.02.2012 DATE OF PRONOUNCEMENT : 02.03.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION B Y THE ASSESSEE HAVE BEEN FILED AGAINST THE ORDER DATED 28.06.2010 PASSE D BY THE LD. CIT(A)-I, AGRA FOR THE ASSESSMENT YEAR 2006-07 ON THE FOLLOWING GROUND S :- ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 2 GROUNDS IN ITA NO.399/AGR/2010 1. THAT THE CIT(A)-I, AGRA HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF ` 48,20,549/- MADE ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) READ WITH SE CTION 56(2) OF THE INCOME TAX ACT, 1961 WITHOUT PROPERLY APPRECIATING THE FACTS BROUGHT ON RECORD BY THE A.O. AND IGNORING THE RATIO LAID D OWN BY THE DECISION OF THE SUPREME COURT IN THE CASE OF SMT. TARU LATA SHYAM AND OTHERS VS. CIT (1977) 108 ITR 345 (SC). 2. BY DOING SO, THE LD CIT(A)-I, AGRA HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT TRANSACTIONS OF THE FIRM CANN OT BE CONSIDERED IN ISOLATION FROM TRANSACTION OF THE PARTNERS OF FIRM AND IN HOLDING THAT TRANSACTIONS OF THE ASSESSEE FIRM AND ITS PARTNERS WITH M/S. KHANDELWAL CABLES LIMITED WARRANT CONSIDERATION IN A COMPOSITE MANNER, COMPLETELY IGNORING THE SPECIFIC LEGAL PROV ISIONS OF SEC.2(31)(IV) OF THE ACT PROVIDING THAT FIRM IS A S EPARATE LEGAL ENTITY FOR THE PURPOSES OF THE INCOME-TAX ACT, 1961. 3. THAT THE ORDER OF THE LD. CIT(A)-I, AGRA IS ERRO NEOUS IN LAW AND ON THE FACTS OF THE CASE AND THAT THE ORDER OF THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR DELETE OR ALTER OR MODIFY ANY GROUND DURING APPEAL PROCEEDINGS. GROUNDS IN CROSS OBJECTION NO.19/AGR/2011 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRM ING THE ACTION OF LD. ASSESSING OFFICER IN HOLDING THAT IMPUGNED ADD ITION WAS COVERED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME TAX A CT, 1961. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, THE IMPUGNED ADDITION MADE BY LD. ASSESSING OFFICER U/S 2(22)(E) WAS NOT ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 3 SUSTAINABLE UNDER ANY CIRCUMSTANCES, MUCH LESS IN T HE HANDS OF THE RESPONDENT ASSESSEE. 3. THAT THE CROSS OBJECTOR CRAVES THE LEAVE TO ADD, AMEND, MODIFY, DELETE ANY OF THE GROUND(S) OF CROSS OBJECTION BEFO RE OR AT THE TIME OF HEARING. 2. THE ASSESSEE FIRM DERIVES INCOME FROM MANUFACTUR E AND SALE OF PLASTIC INSULATED WINDING WIRE FOR SUBMERSIBLE PUMP MOTORS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED FROM TH E AUDITORS REPORT THAT A LOAN OF ` 48,20,549/- WAS TAKEN FROM M/S KHANDELWAL CABLES LI MITED. THE ASSESSEE FIRM CONSISTED OF TWO PARTNERS NAMELY SHRI KAILASH CHAND GUPTA AND SMT. MITHLESH GUPTA HAVING SHARE RATIO AT 80% & 20% RESPECTIVELY. IT HAS ALSO BEEN NOTED THAT M/S KHANDELWAL CABLES LIMITED HAD SHARE HOLDING OF SHRI KAILASH CHAND GUPTA AND SMT. MITHLESH GUPTA AT 11.57% AND 13.05% RESPEC TIVELY. THE ASSESSING OFFICER NOTICED THAT THE SHARE HOLDING OF BOTH THE PARTNERS IN M/S KHANDELWAL CABLES LIMITED WAS MORE THAN 10% AND, THEREFORE, TH EY WERE HAVING SUBSTANTIAL INTEREST IN THE FIRM M/S KHANDELWAL ASSOCIATES AS P ER EXPLANATION 3(B) TO SECTION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE. IN RESPONSE TO THAT THE ASSESSEE SUBMITT ED THAT THERE IS NO LOAN OR ADVANCE IN EFFECT FROM M/S. KHANDELWAL CABLES LIMIT ED AS THE ASSESSEE AND ITS PARTNERS WERE HAVING SEVERAL ACCOUNTS WITH M/S. KHA NDELWAL CABLES LIMITED. WHEN ALL THE ACCOUNTS ARE MERGED THE NET EFFECT REF LECTS THAT THERE WAS NO LOANS OR ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 4 ADVANCES TO THE ASSESSEE. THE ASSESSING OFFICER DI D NOT ACCEPT THE ASSESSEES CONTENTION THAT THE ASSESSEE WAS HAVING DIFFERENT A CCOUNTS INCLUDING JOB WORK ACCOUNT AS POINTED OUT BY THE ASSESSEE HAS NO RELAT IONSHIP WITH THE LOAN ACCOUNT. THE LOAN ACCOUNTS OF THE PARTNERS AS STANDING IN TH E BOOKS OF ACCOUNTS OF THE COMPANY WERE THERE AND SOME ARE NOT REPAID FROM WHI CH IT IS CLEAR THAT THE LOANS ARE STANDING AT THE END OF THE YEAR IN RESPECTIVE A CCOUNTS AND THE SAME WERE NOT REDUCED BY THE AMOUNT OF LOANS ADVANCED BY THE COMP ANY TO THE ASSESSEE FIRM ON RESPECTIVE DATES. THE ASSESSING OFFICER MADE THE A DDITION OF ` 48,20,549/- UNDER SECTION 2(22)(E) OF THE ACT. 3. BEFORE THE CIT(A), THE ASSESSEE RELIED UPON THE ORDER OF I.T.A.T. SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LT D, 118 ITD 1 (MUMBAI) (SB) WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE FIRM IS NOT SHARE HOLDER, THERE IS NO QUESTION OF FASTENING THE TAX LIABILITY ON THE SHOU LDER OF THE ASSESSEE FIRM ON ACCOUNT OF IMPUGNED DEEMED DIVIDEND. THE ASSESSEE IN SUPPORT OF HIS CONTENTION RELIED UPON VARIOUS OTHER DECISIONS WHICH HAS BEEN NOTED BY THE CIT(A) AT PAGE NOS. 4, 5 & 6 OF HER ORDER. THE ASSESSEE ALSO CONT ESTED BEFORE THE CIT(A) ON MERIT. THE CIT(A) DISTINGUISHED THE DECISION OF I.T.A.T., SPECIAL BENCH, IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. ON THE GROUND THAT THE FACTS OF THE CASE ARE ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 5 DIFFERENT. HOWEVER, THE CIT(A) ACCEPTED THE ASSESS EES CONTENTION ON MERIT AND DELETED THE ADDITION AS UNDER :- AS TO WHETHER SECTION 2(22)(E) OF THE ACT IS APPLI CABLE TO THE APPELLANTS CASE IS A FINDING OF FACT. IT IS SEEN THAT ADMITTEDLY THE TWO PARTNERS OF THE FIRM NAMELY SHRI KAILSH CHAND GUPTA AND MITHLESH KHANDELWAL HAVE PROFIT SHARING RATIO OF 80:20 AND A RE REGISTERED AND BENEFICIAL SHAREHOLDERS OF M/S. KHANDELWAL CABLES L IMITED WITH SHAREHOLDING OF 11.57% AND 13.05% RESPECTIVELY. HE NCE, 2 OUT OF 3 CONDITIONS OF SECTION 2(22)(E) ARE UNDISPUTEDLY FUL FILLED IN THE APPELLANTS CASE. THUS, ONLY THE NATURE OF THE REC EIPTS AGGREGATING TO ` 48,20,549/- IS IN DISPUTE INSOMUCH THAT THE ASSESSI NG OFFICER HAS TREATED THESE AS ADVANCES/LOANS AS ENVISAGED IN SEC TION 2(22)(E) OF THE ACT, WHEREAS THE APPELLANT HAS CLAIMED THAT BOTH TH E PARTNERS HAD SUBSTANTIAL CREDIT BALANCES WITH M/S. KHANDELWAL CA BLES LIMITED AND THAT AT NO POINT OF TIME WAS ANY AMOUNT RECEIVED FR OM KHANDELWAL CABLES LIMITED WHICH EXCEEDED THE DEPOSITS OF THE P ARTNERS WITH KHANDELWAL CABLES LIMITED. THE COMBINED COPY OF AC COUNT OF THE APPELLANT FIRM AND ITS 2 PARTNERS IN THE BOOKS OF K HANDELWAL CABLES LIMITED WAS FURNISHED BY THE APPELLANT DURING ASSES SMENT PROCEEDINGS (ANNEXURE TO THIS ORDER) AND HAS BEEN D ISCUSSED IN DETAIL IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS REFUTED THE ABOVE CLAIM OF THE APPELLANT REFERRING TO THE APPELLANTS INDIVIDUAL ACCOUNT INDEPENDENT OF ITS PARTNERS ACCOUNTS WITH M/S. KHA NDELWAL CABLES LIMITED. HOWEVER, THIS VIEW OF THE ASSESSING OFFIC ER IS NOT JUSTIFIED FOR THE REASONS THAT - - AS ARGUED BY THE APPELLANT, A PARTNERSHIP FIRM IS A COMPENDIOUS NAME OF ALL THE PARTNERS. HENCE, THE T RANSACTIONS OF THE FIRM CANNOT BE CONSIDERED IN ISOLATION FROM THE TRANSACTIONS OF THE PARTNERS ON BEHALF OF AND IN TH EIR CAPACITY AS PARTNERS OF THE FIRM. - THE ADVANCES BY KHANDELWAL CABLES LIMITED TO THE APPELLANT FIRM ARE NOT ADVANCES IN THE ABSOLUTE AS (I) KHANDE LWAL CABLES LIMITED WAS IN POSSESSION OF THE FUNDS OF THE PARTN ERS AND OWNED JOB WORK CHARGES PAYABLE AND (II) THE ADVANCE S TO THE ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 6 APPELLANT FIRM DID NOT EXCEED THE CREDIT BALANCES O F THE PARTNERS WITH AND JOB WORK CHARGES RECEIVABLE FROM KHANDELWAL CABLES LIMITED. HENCE, THE IMPUGNED ADV ANCE BY KHANDELWAL CABLES LIMITED TO THE APPELLANT ARE EFFE CTIVELY REPAYMENT OF THE LOANS OF THE APPELLANTS PARTNERS THOUGH OSTENSIBLY TO THE APPELLANT FIRM. THUS, THOUGH, IN FORM, THE AMOUNTS DRAWN BY THE APPELLANT FROM KHANDELWAL CABL ES LIMITED APPEAR AS ADVANCES/LOANS, IN SUBSTANCE THE APPELLANT FIRM HAS RECEIVED THE IMPUGNED AMOUNTS OF AND FROM ITS OWN PARTNERS, THOUGH THROUGH KHANDELWAL CABLES LIMITED. THIS IS NO DIFFERENT FROM REPAYMENT BY KHANDELWAL CABLES LI MITED OF THE DEPOSITS OF THE APPELLANTS PARTNERS AND INTROD UCTION THEREOF BY THE PARTNERS IN THE APPELLANT FIRM. - THE A.O. IS OF THE VIEW THAT THE ACCOUNT OF THE A PPELLANT IN THE BOOKS OF KHANDELWAL CABLES LIMITED DESERVES TO BE C ONSIDERED IN ISOLATION FROM THE PARTNERS ACCOUNTS IN THE BOO KS OF KHANDELWAL CABLES LIMITED AND JOB WORK CHARGES FOR THE PURPOSE OF SECTION 2(22)(E). HOWEVER, THIS VIEW DO ES NOT APPEAR TO BE TENABLE FOR THE REASON THAT SECTION 2( 22)(E) ENVISAGES INTEGRATED CONSIDERATION OF TRANSACTIONS BETWEEN THE CREDITOR COMPANY AND THE DEBTOR CONCERN LINKED THRO UGH THE COMMON SHAREHOLDER. BAY THIS RATIONALE, ALL THE TR ANSACTIONS OF THE APPELLANT FIRM AND ITS PARTNERS WITH M/S. KHAND ELWAL CABLES LIMITED WARRANT CONSIDERATION IN A COMPOSITE MANNER. 4.6 THUS, SINCE THE CONSOLIDATED BALANCE IN ALL THE ACCOUNTS OF THE APPELLANT AND ITS PARTNERS IN KHANDELWAL CABLES LIM ITED (REFER ANNEXURE) IS ADEQUATE TO COVER THE APPELLANTS WITH DRAWALS RECEIPTS FROM KHANDELWAL CABLES LIMITED, NO DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE ACT ARISES IN THE APPELLANTS HANDS . HENCE, THE ADDITION OF ` 48,20,549/- IS NOT SUSTAINABLE AND ACCORDINGLY DELE TED. 4. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CI T(A) DECIDING THE ISSUE AGAINST THE REVENUE ON MERIT AND THE ASSESSEE HAS R AISED ITS CROSS OBJECTION ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 7 AGAINST THE ORDER OF CIT(A) ON LEGAL ISSUE WHICH ST ANDS DECIDED AGAINST THE ASSESSEE. 5. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT THE DECISIONS RELIED UPO N BY THE ASSESSEE INCLUDING THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) AND OTHERS HAVE NOT CONSIDERED AMENDED PROV ISIONS OF THE ACT. 6. LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF ITAT, CHENNAI BENCH IN THE CASE OF ASWANI ENTERPRISES VS. ACIT, 1 20 ITD 38 (CHENNAI) AND SUBMITTED THAT ITAT, CHENNAI BENCH HAS DECIDED THE ISSUE AFTER CONSIDERING THE AMENDMENT IN THE RELEVANT PROVISIONS. THE LD. DEPA RTMENTAL REPRESENTATIVE ALSO RELIED UPON AN ORDER OF AGRA BENCH OF ITAT IN CASE OF ATUL ENGINEERING UDYOG LIMITED, 57 DTR 433 AND THE JUDGEMENT OF CALCUTTA H IGH COURT IN THE CASE OF MUKUNDRAY K. SHAH VS. CIT, 277 ITR 128 (CAL) AND SU BMITTED THAT THE HIGH COURT HAS LAID DOWN A DETAILED GUIDELINES AND ACCORDING T O THAT GUIDELINES THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSING OFFICER HAS RIGHTLY INVOKED SECTION 2(22)(E) TO THE CASE UNDER CONSIDER ATION. ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 8 7. LD. AUTHORISED REPRESENTATIVE RELIED UPON THE OR DER OF CIT(A) IN RESPECT OF MERIT OF THE CASE. HOWEVER, AS REGARDS THE LEGAL I SSUE, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS INCLUDING THE DECISION OF ITAT, S PECIAL BENCH, IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA), CIT VS. H OTEL HILLTOP, 313 ITR 116 (RAJ) AND CIT VS. UNIVERSAL MEDICARE (P) LTD., 324 ITR 263 (BOMB.). LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ORDER OF ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. HAS BEEN U PHELD BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF INVOKING SECTION 2(22)(E) S UCH SHARE HOLDERS IN THE CONCERN TO WHICH LOAN IS ADVANCED MUST BE BOTH AS A REGISTE RED SHARE HOLDER AS ALSO BENEFICIAL SHARE HOLDER. LD. AUTHORISED REPRESENTA TIVE SUBMITTED THAT THE DECISION RELIED UPON BY THE LD. DEPARTMENTAL REPRESENTATIVE OF ITAT, AGRA BENCH IN THE CASE OF DCIT VS. ATUL ENGINEERING UDYOG LIMITED, 57 DTR 433 IS RATHER IN FAVOUR OF THE ASSESSEE. HE FURTHER SUBMITTED THAT IN THE DECISION RELIED UPON BY THE LD. DEPARTMENTAL REPRESENTATIVE IN THE CASE OF ASWANI E NTERPRISES VS. ACIT, 120 ITD 38 (CHENNAI), THE ISSUE BEFORE THE ITAT, CHENNAI BE NCH WAS IN RESPECT OF ACCUMULATION OF PROFIT. ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 9 8. AS REGARDS CONTENTION OF THE LD. DEPARTMENTAL RE PRESENTATIVE REGARDING THE COMMENTS ON THE DECISION OF ITAT, SPECIAL BENCH AND BOMBAY HIGH COURT, LD. AUTHORISED REPRESENTATIVE WITH REFERENCE TO JUDGEME NT OF M.P. HIGH COURT IN THE CASE OF NATIONAL TEXTILES CORPORATION LIMITED M.P. VS. CIT 338 ITR 371, SUBMITTED THAT LOWER AUTHORITY SHOULD NOT COMMENT U PON THE DECISION OF HIGHER APPELLATE AUTHORITIES INCLUDING DECISION OF ITAT, S PECIAL BENCH AND HIGH COURTS. 9. THE LD. AUTHORISED REPRESENTATIVE IN RESPECT OF MERIT OF THE CASE, RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT THE CIT (A) HAS RIGHTLY CONSIDERED ALL ACCOUNTS AND ACCORDINGLY FOUND THAT THERE WAS NO LO ANS OR ADVANCES. ALTERNATE SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE, WI THOUT PREJUDICE TO THE CONTENTS ABOVE, WAS THAT THE MAXIMUM AMOUNT FOR WHICH SECTIO N 2(22)(E) IS TO BE INVOKED IS REQUIRED TO BE CONSIDERED ENTRY-WISE. IN CASE O F FIRST ENTRY, IF IT IS TAKEN AS DEEMED DIVIDEND, THEN SET UP OF THE FIRST ENTRY IS TO BE GIVEN IN THE NEXT TRANSACTION. LD. AUTHORISED REPRESENTATIVE DEMONSTRATED THIS CON TENTION WHILE REFERRING VARIOUS PAGES OF PAPER BOOK AT PAGE NOS.23 WHERE CO PY OF LEDGER ACCOUNT OF MA/S. KHANDELWAL CABLES PVT. LTD. HAS BEEN PLACED. 10. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQ UARELY COVERED IN FAVOUR OF THE ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 10 ASSESSEE BY THE DECISION OF ITAT SPECIAL BENCH IN T HE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) WHICH HAS BEEN APPROVED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD., 324 IT R 263 (BOMBAY). THE DECISION CITED BY THE LD. DEPARTMENTAL REPRESENTATIVE IS DI STINGUISHABLE ON FACTS, RATHER ONE OF THE DECISION OF AGRA BENCH IN THE CASE OF DC IT VS. ATUL ENGINEERING (SUPRA) IS IN FAVOUR OF THE ASSESSEE WHEREIN THE I. T.A.T., AGRA BENCH FOLLOWED THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) AND JUDGEMENT OF BOMBAY HIGH COURT IN THE C ASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. BY HOLDING THAT THE ASSESSEE FIRM IS NOT SHARE HOLDER OF THE COMPANY A.G. LIMITED. THE EXPRESSION SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRS T LIMB OF SECTION 2(22)(E) REFERS TO BOTH A REGISTERED SHARE HOLDER AND BENEFICIAL SHARE HOLDER. AS REGARDS THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE T HAT THE AMENDED PROVISION HAS NOT BEEN CONSIDERED BY THE SPECIAL BENCH IN THE CAS E OF ACIT VS. BHAUMIK COLOUR (P) LTD., WE NOTICE THAT THE ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. HAS CONSIDERED THE AMENDMENT IN ITS ORDER. AFTER CONSIDERING THE AMENDMENT, IT HAS BEEN HELD BY THE ITAT SPECIAL BEN CH THAT THE REQUIREMENT OF THE SECTION IS HOLDING OF SHARES BOTH AS REGISTERED AND BENEFICIAL OWNER OF SUCH SHARES IS REQUIREMENT OF SECTION 2(22)(E) OF THE AC T. THE SAID ORDER OF THE ITAT SPECIAL BENCH HAS BEEN APPROVED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 11 UNIVERSAL MEDICARE (P) LTD. RAJASTHAN HIGH COURT I N THE CASE OF CIT VS. HILLTOP, 313 ITR 116, ON IDENTICAL SET OF FACTS IN THE CASE UNDER CONSIDERATION HELD THAT AMOUNT OF ADVANCE BY COMPANY TO PARTNER OF A FIRM W HICH FIRM IS NOT A SHARE HOLDER IN THE COMPANY CANNOT BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE FIRM EVEN THOUGH ALL THE PARTNERS OF THE FIRM ARE S HARE HOLDERS IN THE COMPANY. IF WE APPLY THE ABOVE DISCUSSION TO THE FACTS OF THE C ASE UNDER CONSIDERATION, WE NOTICE THAT THE ASSESSEE FIRM IS NOT SHARE HOLDER O F M/S KHANDELWAL CABLES LIMITED. THEREFORE, ONE OF THE BASIC CONDITION IS NOT SATISFIED FOR INVOKING SECTION 2(22)(E). IN THE LIGHT OF THE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE APPEAL OF THE ASSESSEE IS ALLOWABLE ON THIS LEGAL ISSUE ITSEL F AND WE ALLOW ACCORDINGLY. SINCE WE DECIDED THE LEGAL ISSUE IN FAVOUR OF THE ASSESSE E, THEREFORE, WE DO NOT THINK IT NECESSARY TO GO ON MERIT AND ACCORDINGLY WE DO NOT EXPRESS ANY OPINION IN RESPECT OF FINDING GIVEN BY THE CIT(A) ON MERIT. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 2 ND MARCH, 2012 PBN/* ITA NO.399/AGR/2010 & C.O. NO.19/AGR/2011 A.Y. 2006-07 12 COPY OF THE ORDER FORWARDED TO: APPELLANT RESPONDENT CIT CONCERNED CIT (APPEALS) CONCERNED D.R., ITAT AGRA BENCH, AGRA GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY